August report the start of a bearish slide for corn?

Elton Robinson, Farm Press Editorial Staff | Aug 17, 2009

USDA’s August 12 corn crop production estimate is likely too low and forecasts for corn use and exports too high, which will add even more bearishness to corn once the information is digested by the market, according to Richard Feltes, an analyst with MF Global, speaking at a CME Group press briefing.

USDA estimated crop production for corn at 12.8 billion bushels, while corn yields were forecast at 159.5 bushels per acre. For soybeans, USDA projected production at a record 3.2 billion bushels, and soybean yields were forecast at 41.7 bushels. Ending stocks for new crop corn were estimated at 1.6 billion bushels, and for soybeans, at 210 million bushels.

In the corn estimate, Feltes noted that USDA “largely looked at stalk counts, they’re not even looking at ears. This is going to be very suggestive to the trade that the corn production number is going to continue to advance in subsequent reports, which it has done in 12 of the last 19 years.”

Feltes is “suspicious” about USDA raising corn usage by 350 million bushels over last month. “We’ll give them the edge on the ethanol, but there is no evidence that feed usage is going to go up next year, with what we’re hearing from the livestock sector.”

USDA also raised corn exports “and there is some evidence for that, but a jump of this magnitude (150 million bushels higher than last month) is not borne out by the international changes in production. I think the market is going to be skeptical about the corn numbers. Hence, corn which is already near its lows, could easily put in new lows. Unless we put in some sort of frost threat to prematurely end the growing season, the path for the corn market is clear.

“The soybean numbers are interesting in that they’re almost in reverse to corn,” Feltes said. “USDA actually reduced soybean usage for 2009-10, but there is no evidence to support this. U.S. soybean sales are tracking at record levels. Sept.1 supplies of South American soybeans are projected to be down 17 million tons from last year. The Brazilians are nearly out of soybeans, and China continues to import soybeans at a near record pace.”

If soybean prices are pulled down in the aftermath of the negative report for grains, “I think prices will quickly find support and buyers,” Feltes said.

“There are other buyers around the world buying hand to mouth waiting for this large U.S. crop, and they have not purchased soybeans. In the first quarter of the 2009-10 marketing year, we’re going to be asking the U.S. farmer to deliver more soybeans to the cash pipeline than he’s ever delivered before.”

Feltes added that while corn crops tend to get larger from August to USDA’s final report, “there’s no history of that happening in soybeans. In fact, soybean yield has a greater chance of declining from August than it does advancing. Today’s soybean yield, at 41.7 bushels, ties the record high soybean yield we had in August 2004, which went on to produce a record.

“Without having a firm handle on this bean crop until the October crop report at the earliest, there’s going to be a lot of risk. Certainly November beans at $9.50 or below are going to be sought after as a real value.”

Dan Manternach, with Doane Advisory Services, was surprised by USDA’s increase in corn usage “which put the carryout at below the average trade expectation. That will be a bit of a pleasant surprise.” But skepticism about the numbers would likely offset longer-term optimism, he added.

On soybeans, Manternach commented, “The years we have really good soybean yields are often the years when we stress the crop a little in June and July and have a really good August. This year, we’ve not stressed the crop that much in June and July, and root systems are not as large as they would have been had they been stressed a little bit. And we’ve had some stressful weather in August.”